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By Andrew S. Rusniak
It is often said that the law lags behind technology. One area where this sentiment is particularly applicable is estate planning for digital assets. In a world where our lives are becoming ever more digital, many estate planning practitioners unfortunately attempt to rely on traditional planning principals for the disposition of digital assets, avoid the issue altogether because of a lack of understanding, or simply fail to consider digital assets in the estate planning process. However, the cost of ignoring or improperly planning for a client’s digital assets can be significant, and a complete estate plan should address the disposition and administration of digital assets.
The task of an executor has always been to identify the decedent’s assets, pay the decedent’s liabilities and debts, and distribute the decedent’s assets pursuant to the terms of the Last Will and Testament. Traditionally, this process generally involved a search of the decedent’s records, and accounts and bills were identified through stored records or subsequently received mail. However, as our lives become ever more digital, this paper trail may no longer exist. For example, service providers continue to promote “paperless billing” through the use of promotions and discounts. Receipts are e-mailed rather than printed. Where an individual has failed to properly plan for the disposition of digital assets, bills may go unpaid, assets may be forgotten or forever lost, and the estate administration process may generally be unnecessarily delayed. With technology so intertwined into our daily lives, it is important that the estate planning process account for a client’s digital assets.
An important first step in the process of estate planning for digital assets is to understand the definition and scope of digital assets. Although there is no uniformly accepted definition, digital assets generally include digitally stored content, online accounts and files stored on digital devices, such as computers and smartphones. In addition, accounts managed and maintained on the internet, such as e-mail, social networking sites, eBay, PayPal, Amazon.com, and YouTube; online storage accounts, such as Apple’s iCloud, Google Drive, and Dropbox; and music accounts, such as iTunes and Pandora, all constitute “digital assets.”
One of the most important tasks of an estate planning attorney is to fully comprehend the nature and extent of a client’s assets to properly provide for the appropriate disposition of each asset. For this reason, one of the first steps of many estate planners when beginning the process of estate planning for a new client is to ask the client to prepare either a personal financial statement or an inventory of assets. It is important that a client be advised to include a comprehensive inventory of digital assets in addition to the assets that are otherwise traditionally accounted for, such as bank accounts, real estate, vehicles, and brokerage accounts. Digital assets can be difficult, if not impossible, to identify if not properly catalogued, and many digital assets may prove to have considerable financial or sentimental value. For example, if a decedent sold a vehicle shortly before death and accepted payment by way of a PayPal transfer, a significant sum of money could be sitting in the PayPal account. Because PayPal generally communicates with its users by way of e-mail, an improper inventory that does not include the decedent’s PayPal account information could result in a failure to locate this asset. Similarly, the process of scrap booking and photo collecting has undeniably gone digital. While unlikely to have a significant financial value, irreplaceable photos of family and friends stored in online accounts can be lost forever if account information is not properly recorded for use by an individual’s fiduciaries. As a result, a complete inventory of digital assets should include the user names and passwords for all digital assets.
In addition to compiling an inventory of digital assets, an estate plan should also authorize a client’s fiduciaries to access, maintain, distribute and dispose of digital assets. In general, every estate plan includes a Durable General Power of Attorney and a Last Will and Testament. Most Power of Attorney documents authorize an agent to pay bills, engage in banking and real estate transactions, pursue tax matters, and generally access and maintain all other property of a principal. However, with the pervasiveness of digital assets, a Power of Attorney should also specifically authorize an agent to access, use, control, modify, delete, and transfer a principal’s digital assets. In addition, a Last Will and Testament should specifically authorize an executor to access, handle, distribute, and dispose of all digital assets. It may also be advisable to reference an external inventory of digital assets, which should contain the relevant user names and passwords, in order to inform the executor of the existence of a decedent’s digital assets.
It is important to note that despite the best planning, certain statutes have been enacted that will have a significant impact on the planning for and administration of digital assets. At the federal level, the Computer Fraud and Abuse Act and the Stored Communications Act are designed to prevent unauthorized access of electronically stored information and also to prevent service providers from knowingly disclosing the contents of electronically stored communications. At the state level, the Pennsylvania House of Representatives recently proposed House Bill No. 2580 to amend the Pennsylvania Probate, Estates and Fiduciaries Code to permit a personal representative to “take control of, conduct, continue or terminate an account of the decedent with a social networking website, microblogging or short message service website or e-mail service website.” However, as of the date of this writing, the House has not voted on H.B. 2580. To complicate things even further, almost every type of digital asset will be subject to a unique Service Provider Agreement (“SPA”), which, despite any state law to the contrary, could limit a fiduciary’s access to and control of a digital asset.
A complete estate plan should address the disposition and administration of digital assets. Additionally, fiduciaries administering and managing an individual’s estate should be mindful of potentially valuable or emotionally significant digital assets and should be cognizant of laws and SPAs that may have an impact on the disposition or administration of such assets. As a result, clients whose estate plans may not have been recently updated to address digital assets are encouraged to review their estate plans with counsel, and fiduciaries are encouraged to seek advice regarding compliance with federal and state laws and SPAs when administering digital assets.
© 2014 McNees Wallace & Nurick LLC
McNees Insights is presented with the understanding that the publisher does not render specific legal, accounting or other professional service to the reader. Due to the rapidly changing nature of the law, information contained in this publication may become outdated. Anyone using this material must always research original sources of authority and update this information to ensure accuracy and applicability to specific legal matters. In no event will the authors, the reviewers or the publisher be liable for any damage, whether direct, indirect or consequential, claimed to result from the use of this material.
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